But if anyone is to blame for excesses in high yield, goes the standard Wall Street narrative, it is the usual villain: Main Street. Much recent commentary, here, for example, takes the traditional line, implying that big institutions are the “smart money” and individual investors the “dumb money” suckers.

That narrative is intuitively appealing, but is it entirely fair? Remember what else the purportedly smart money has been doing lately: piling so hard into high-grade corporate bonds that the buyers have become indistinguishable from drunken teenagers in a Volkswagen-stuffing contest. The net result: Corporate bonds, still carrying all the idiosyncratic risks of single companies, are priced as if they were safer than Treasurys.

Furthermore, aren’t individual investors acting more or less rationally in the face of the Federal Reserve’s zero-interest rate policy?

Consider the wise words of Jules Bogen, editor of The Journal of Commerce, who explained the infatuation of individual investors with junk bonds this way:

The extreme easy money policy of the past few years has tended to drive down sharply the yields of the highest grades of bonds as financial institutions, particularly banks and insurance companies, have sought to obtain desired investments from the limited available supply. As a result, individual investors, accustomed to 5 and 6 per cent yields or more from their bonds, have had little incentive to purchase these high grade new issues.

Pause for a moment and let this sink in: Bogen wrote that passage in the March 1938 issue of the Journal of the American Statistical Association.

The markets have seen this movie before – long ago.

That doesn’t mean the movie is going to have a happy ending this time. But who is acting irrationally? When the Fed gives individual investors little choice but to take extra risk, whom should pundits point their fingers at? The investors? Or the policymakers?